Both in Europe and the UK, concerns have been raised over increasing evidence of poor conduct and risks to investor protection from retail contracts for differences (CfDs). In addition, there has been an increase in the number of firms operating in the CfD market, often selling through online platforms, prompting concerns that retail customers trading CfD products do not have an adequate understanding of these products.

In July 2017, the European Securities and Markets Authority (ESMA) announced that it was considering the use of its product intervention powers in relation to the sale of CfDs, binary options and other speculative products to retail investors.  Following this announcement, the FCA decided to delay making final rules (following its earlier consultation) for UK firms pending the outcome of ESMA’s discussions.  The FCA will continue to engage with ESMA and will reconsider domestic rules in the first half of 2018.

What were the proposed changes in the FCA consultation?

  • Standardised risk warnings and mandatory disclosure of profit-loss ratios;
  • A leverage cap at a maximum level of 50:1 for all retail clients and lower leverage caps across different assets according to their risks;
  • Lower leverage limits for inexperienced retail clients that do not have 12 months or more experience of active trading of CfD products, with a maximum ratio of 25:1; and
  • A prohibition on providers using any form of trading or account opening bonuses or benefits to promote CfD products.

What do I need to do now?

Firstly, you need to comply with MiFID II, if you are within scope and by 3 January 2018.  Don’t forget that the UK will categorising binary options as MiFID instruments. From 2018, you need to keep an eye out for the UK gold plating any EU requirements.

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